Status: The State has one unbundling
program for residential gas customers.

Overview: Almost all of the residential and
commercial customers in Source Gas LLC's (SourceGas, formerly Kinder Morgan, Inc.) Nebraska service areas are
participating in the State's only customer choice program. Kinder Morgan, which sold its natural gas utility assets in 2007 to SourceGas, initiated its Nebraska Choice Gas Program in April
1998 as a proactive step to unbundling natural gas services in the State. In the 10th year of the program, residential and small commercial
customers in virtually all of the 180 communities served by the company were
eligible to choose among three suppliers for their natural gas, one of
which is the company's gas marketing division, SourceGas Energy Services. The
other participating suppliers are ONEOK Energy Marketing Company and
Public Alliance for Community Energy (known as ACE),
a municipally owned, not-for-profit organization. Customers were required
to make their natural gas supplier selection by May 1, 2007, for service
from June 1, 2007, through May 31, 2008. Most customers in the program (57
percent) chose to purchase gas from SourceGas Energy Services.

Until
passage of the State Natural Gas Regulation Act in May 2003, Nebraska had
a somewhat unique situation in which individual communities and
municipalities, rather than a statewide regulatory body, regulated retail
natural gas service. Since January 2004, the Nebraska Public Service
Commission has the responsibility for overseeing the rates charged for
natural gas service and the terms and conditions of
service. The commission opened a docket in June 2005 to investigate and
adopt policies for administration of Kinder Morgan's consumer choice program and any
other choice programs that might be offered by jurisdictional utilities
for natural gas service in the State. In 2006, new rules were drafted regarding meter errors, consumer choice programs, aggregators and suppliers, and emergency curtailment plans. A hearing on the proposed rules was held in October 2007.

EIA State Data:In 2006, Nebraska had 499,504 residential and
56,547 commercial customers. They consumed 36 and 28 billion cubic feet of
natural gas, respectively. The average prices paid for natural gas purchased
from local distribution companies by residential and commercial customers
were $11.30 and $9.62 per thousand cubic feet, respectively.

Summary: Individual communities and
municipalities, rather than a statewide regulatory body, regulated retail
natural gas service in Nebraska until passage of the State Natural Gas
Regulation Act, effective as of January 1, 2004. In setting up its
Nebraska Choice Gas Program, Kinder Morgan, Inc. (formerly known as KN Energy) reached an agreement with each municipality. The company agreed to
fund formation of a Municipal Oversight Committee, which would recommend
any changes needed in the program and serve as a mediator in any disputes.
Nearly all the communities in the company's service territory voted
to participate in the choice program.

The State Natural Gas
Regulation Act is modeled after laws governing natural gas regulation in
Kansas and repeals the Municipal Natural Gas Regulation Act, which had
given regulatory authority of natural gas utilities to local governments.
The act includes an option for municipalities and LDCs to negotiate rates
for natural gas, but otherwise the Nebraska Public Service Commission
(PSC) has the responsibility for overseeing the rates charged for natural
gas service and also oversight of the terms and conditions of service.
Utilities operating in the State must obtain a certificate of public
convenience from the PSC. The PSC also has authority to insure that gas
marketers operating in the State are properly qualified and capable of
providing service. The law also creates a 5-member citizen's utility
ratepayer board to represent consumers in rate proceedings.

Regulatory and Legislative Actions

Legislation

04/06

Governor Signs Law Amending Natural Gas Pipeline Dispute Statutes and Issues Regarding Service Territories (Bill 1249). The legislation becomes effective on July 14, 2006, and will require new PSC rules.

05/03

Governor Signs State Natural Gas
Regulation Act (Bill 790). The act
repeals the Municipal Natural Gas Regulation Act and creates a new
regulatory structure whereby the Nebraska Public Service Commission
will regulate natural gas utilities, assuming responsibility for
rates charged for gas service and also the terms and conditions of
service. The act includes an option for municipalities and LDCs to
negotiate rates; otherwise the PSC will do so. Public utilities
doing business in the State must obtain a certificate of public
convenience from the PSC. The act becomes effective on January 1,
2004.

PSC Sets October Deadline for Comments on Proposed Rules. The PSC asks for comments on proposed rules for Legislative Bill 1249 and rules regarding meter errors, consumer choice programs, aggregators and suppliers, and emergency curtailment plans. A hearing date was set for October 16, 2007.

PSC Approves Kinder Morgan Rate Increase and Settlement with the Public Advocate. The PSC authorized Kinder Morgan to continue collecting a Choice Gas Program supplier fee that will be adjusted annually beginning May 31, 2007. The PSC approved an annual base rate increase that phases in higher customer charges while lowering volumetric charges. All 11 rate areas are merged into one. New rates take effect Jan. 1, 2007, and will be adjusted on April 1 of 2008 and 2009. The PSC also authorized a new small commercial customer class.

10/06

PSC Opens Docket to Adopt Rules for Legislative Bill 1249 and Add Rules Regarding Meter Errors, Consumer Choice Programs, Aggregators and Suppliers, and Emergency Curtailment Plans. Comments on the proposed amendments are due by November 15, 2006, and a public hearing will be scheduled at a later date.

08/06

PSC Investigates Interaction Among Aggregators, Suppliers, and Utilities Offering Customer Choice Programs. PSC determined that utilities should include an aggregator code of conduct in their tariffs and all aggregators must be certified by the PSC. Also choice customers who choose to use an aggregator should be treated no differently than those making a choice personally.

03/06

PSC Rejects Ace's Application to Become Competitive Gas Supplier for Entire State. The Public Alliance for Community Energy (ACE) is a collection of 66
communities and one public power district formed through interlocal
agreements. Although ACE wanted to expand its supplier services beyond the Kinder Morgan service area, the PSC ruled that as a political subdivision ACE does not have the power to function outside its area.

06/05

PSC Opens Docket for Administration of
Consumer Choice Programs. PSC began an
investigation into setting rules for administering consumer choice
programs in the State. The investigation will explore the following
issues: adoption of a standard code of conduct for utilities
offering consumer choice programs; educational information about
choice for consumers; annual reporting requirements for utilities
offering choice and for participating marketers; and whether and how
to calculate cost comparisons among suppliers for the benefit of
consumers.

Customers Select Suppliers for 2005-2006
Choice Program. Balloting to
select a supplier for the 2005 choice program occurred in April
2005. Selections were as follows: Kinder Morgan Choice Gas Supply:
55,153; Public Alliance for Community Energy: 23,882;
and ONEOK Energy Marketing: 6,683.

05/04

Customers Select Suppliers for 2004-2005
Choice Program. Balloting to
select a supplier for the 2004 choice program occurred in April
2004. Selections were as follows: Kinder Morgan Choice Gas Supply:
60,004; Public Alliance for Community Energy: 22,340;
and ONEOK Gas Marketing: 4,984.

05/03

Customers Select Suppliers for 2003-2004
Choice Program. Balloting to
select a supplier for the 2003 choice program occurred in April
2003. Selections were as follows: Kinder Morgan Choice Gas Supply:
60,297; Public Alliance for Community Energy (known as ACE): 22,510;
and ONEOK Gas Marketing: 4,066.

Customers Select Suppliers for 2000-2001
Choice Program. Balloting to
select a supplier for the 2000 choice program occurred in April
2000.

05/99

Customers Select Suppliers for 1999-2000
Choice Program. Balloting to
select a supplier for the 1999-00 choice program occurred in April
1999, with KN Energy announcing that about 71 percent chose their
current supplier. Nearly all communities (176 of 180) are
participating in the program.

05/98

Customers Select
Suppliers. Balloting to select a supplier for the
1998-99 choice program occurred between 4/17/98 and 5/1/98, with
most (82 percent) choosing KN Services, a wholly owned subsidiary of
KN Energy. By the end of March 1998, 165 towns had passed ordinances
approving participation in the choice
program.

02/98

Towns Approve Choice Program.
More than half (109 of 181) the Nebraska
towns in KN' service territory passed ordinances that allow customer
choice in their communities. KN customers can purchase gas from one
of four suppliers. The company will continue to provide bundled
service to those customers who do not choose a supplier. The utility
also offers additional services through a program called "Simple
Choice" that allows customers to purchase entertainment,
communication, and energy services with "one call" and one
bill.

12/97

Agreement Reached on KN Energy's Proposed
Choice Program. KN Energy and
several Nebraska municipalities reached an agreement on KN's
proposed PGA rate increase and planned Choice program. KN Energy
agreed to fund formation of a municipal oversight committee, which
would recommend program changes and mediate disputes. Municipalities
will be able to participate as a supplier in the choice program
without having to open their own systems to competition. Towns in
KN's service territory will vote on whether or not to
participate.